FINSUM

FINSUM

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(New York)

There is a lot of focus right now on how great an impact coronavirus will have on the stock market, both locally and abroad. So far it has impacted stocks on certain days, with the effect immediately disappearing soon after. The reality is, however, that coronavirus’ impact may be uneven, with some sectors getting hit badly and others being fine, even as benchmark indexes might seem largely unhurt. We have already written about how luxury retail is hurting because of a lack of Chinese tourists, but now it is looking like commodities might be deeply wounded across the board. China is a huge driver of commodity markets as its demand fuels the market. And with the economy so shut down, commodity demand is going to drop off a cliff.


FINSUM: What is most worrying is that commodity prices don’t seem to reflect this at all, which means they are at risk of plummeting.

(New York)

Every investor is trying to figure out if coronavirus is going to have a major impact on markets this year, or will soon just be a forgotten blip. Goldman Sachs has weighed in on the issue and says investors should not worry much, as coronavirus’ impact will be “limited”. The bank says coronavirus could slow US growth by 0.5 percentage points in the first quarter, but that would easily be made up in Q2 and Q3. According to Goldman, “Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks”.


FINSUM: We aren’t sure we entirely agree. A lot of this depends on how long the virus keeps China shut down. Growth there is not as great as during SARS in 2003, so this could actually lead to a global recession.

Monday, 10 February 2020 09:09

China is Going to Hurt the Global Economy

(Beijing)

It is often hard to get a handle on how the Chinese economy is doing. The country’s government controls information very tightly, which makes the whole nation a black box. However, with coronavirus fears in full flourish there is some additional insight available, and it is worrying. Factories across the country have been shut as part of an effort to contain the disease, and even tech workers are working remotely. All over the country, from Beijing to Shanghai, to industrial provinces, workers are not reporting to factories (following government advice to stay home). Even today, as some parts of the country were supposed to return to work, many are not.


FINSUM: The Chinese economy seems to have completely stopped. It is hard to imagine there will not be a significant recession this quarter in China, which could reverberate all over the world.

(New York)

While the stock market had a little blip because of coronavirus, prices are already back to all-time highs. That might be very misguided. The market appears to be discounting the huge effects coronavirus is having on the Chinese economy, which has completely ground to a halt according to some reports. Investors have been complacent about the risk because when SARS happened in 2003, there was a strong v-shaped recovery. However, at that point the Chinese economy was growing at 11%, not at the barely 6% it is today. The global economy itself is only a few tenths of a percentage point off what most would consider a downturn, so things are fragile to begin with. Speaking about the market’s bullish outlook, Stephen Roach, former chief economist and chairman of Morgan Stanley Asia says “This is a market where if you declared it was World War III, they would rally on reconstruction. It’s pretty ludicrous the optimism that is built in”.


FINSUM: If that quote does not hit the nail on the head, we don’t know what does.

(New York)

Coronavirus has made a reasonable impact on the market. Things fell a bit but are back where they started. However, instead of focusing on the big esoteric risk of the virus, it might be more productive to think about the specific sectors where the virus is gong to have an impact no matter what. Take for instance luxury retail, which is reportedly getting walloped by the virus. Why you might ask? Chinese tourists have vanished from the fancy shops of New York, Paris, and Milan, which means top luxury brands aren’t selling as many glitzy handbags.


FINSUM: There are going to be many of these niche areas that will be hurt by the virus, but don’t immediately come to mind when you consider its impact.

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